Inheritance Tax: transfer of threshold
This guide explains the rules for transferring any unused nil rate band (threshold).
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.
There’s normally no Inheritance Tax to pay if:
- the value of your estate is below the £325,000 threshold (nil rate band)
- you leave everything to your spouse or civil partner, a charity or a community amateur sports club
If you’re married or in a civil partnership and your estate is worth less than £325,000, or you don’t use all of your threshold when you die, your partner’s executors can transfer any unused threshold from your estate to your partner’s estate when they die.
This increases the threshold (nil rate band) available on the death of your spouse or civil partner and means their threshold can be as much as £650,000.
The transfer doesn’t happen automatically, your partner’s executors must claim to transfer it when your spouse or civil partner dies.
How the transfer works
When your spouse or civil partner dies, the threshold (nil rate band) that’s available to their estate is increased by the percentage of the threshold that was unused when you died.
A spouse died when the threshold was £250,000. They left legacies totaling £125,000 to their children with the remainder to the surviving spouse or civil partner.
The legacies to the children would use up half of the threshold, leaving the other half (50%) unused.
On the deceased’s death, the threshold was £325,000, so their threshold would be increased by 50% to £487,500.
If the surviving spouse’s estate isn’t worth more than £487,500 there’ll be no Inheritance Tax to pay on their death. If it is, there’ll be Inheritance Tax to pay on the value above that figure.